Delayed Gratification

Saving for your first home could take longer than you think, but starting early and making wise decisions can bring your dream home a step nearer. Kay Hill looks at tools and advice that might help

Respected consumer organisation Which? has launched a new online mortgage deposit calculator, in response to its research that found would-be homeowners are forced to save for up to a decade to get on the property ladder. The organisation’s latest Homebuyers Survey, which asked more than 1,000 first time buyers about their experiences, found that 69% said it took more than two years to build their home deposit and 23% had to save for five to 10 years.

Many people, it seems, start saving too little, too late to achieve their aims, and may not realise the effect of house price increases on their plans. The calculator, which can be found in the mortgages section at which.co.uk, gives a totally personalised projection, based on how much you can save each year, the interest on your savings, existing funds, the possibility of help from the bank of mum and dad and the rate of house price inflation in the area in which you are hoping to buy.

“Saving for a deposit is a big challenge and can seem like a daunting task,” says David Blake, principal mortgage adviser at Which? “Our deposit affordability calculator helps you to think about buying a home and gives you a realistic expectation of how long it might take you to get there. We also factor in regional market information, to forecast how much you’ll need to save over time. This is particularly helpful for first time buyers, who may have less information about the property market and the process of buying a home.”

If you aren’t tied to a fixed location, the calculator may help you decide where best to look, as it automatically fills in the average house price within that area (although you can vary this if you are aiming higher or lower) and the local house price inflation rate – from whole regions like the South East right down to individual towns. So, for example, if you were a first time buyer with existing savings of £2,000, saving £100 a month into an account paying 1.5%, then you might prefer to look at Blackpool, Pendle or Blaenau Gwent, where you would have to save for just two years to get the necessary 5% deposit, rather than set unrealistic sights on becoming a property owner in inner London, where the calculator notes: “Unfortunately you won’t be able to afford a deposit based on these values.”

Even if you are tied to a particular county, it can help you decide where to look – our fictional saver looking to buy in Essex, for example, would have to save for 14 years to buy an average property in Chelmsford, but just eight years in nearby Colchester, a few stops along the mainline railway line.

A particularly useful feature is that it demonstrates very clearly how even a small increase in savings can have a dramatic effect. If our fictional saver were to squirrel away a modest extra £20 a month, that property in Chelmsford would be accessible in 11 years and the one in Colchester in seven years. A little bit more effort, for example adding in the £932 that Moneywise deputy editor Helen Knapman says she saved by taking packed lunches to work for a year, plus the £400 she saved on not buying takeaway coffee, would mean putting £231 away in savings each month. Amazingly, that would mean getting the keys to the house in Colchester in four years, or the one in Chelmsford in just five.

Of course it’s worth bearing in mind that even the wonderful people at Which? don’t have a crystal ball. “It isn’t possible to accurately predict the impact of Brexit and inflation on the housing market,” warns David Blake, “however, our tool gives you an indication of how long it would take you to save up if market conditions were to continue with the current trend.”

Never too young?

So, should children be saving for their own real-life castle while they’re still building sandcastles?

It’s perfectly possible to own your own home by the age of 25, says a new study by HSBC called Deposit Dash – but youngsters need to stop spending all their money on sweets and football cards, and sacrifice those Easter eggs to build a nest egg. The study suggests that if children were to put away just a quarter of what they receive from birth – including pocket money, Christmas cash, holiday jobs and presents from the tooth fairy – then they would easily be able to put down a 5% deposit by the time they are 25.

The study suggests that, by the age of 10, the average child will have received £22,005. This is not just cash, however, it also includes the value of actual gifts given at Christmas, birthdays and Easter. And what parent would want to tell their eight-year-old that they couldn’t have a new bike, or a PlayStation, because the money needs to go into their deposit fund instead?
Tracie Pearce, HSBC UK’s Head of Mortgages, is more positive, “We’re not suggesting that children and young adults shouldn’t spend any of their pocket money, or enjoy themselves, but they should be aware of what money they have and receive, and regularly save some of it. It’s interesting to see that many young people don’t think they’ll ever be able to afford to buy their own home, however, by starting saving early on, homeownership is a realistic and achievable aspiration.”